YouTube and Sequoia Go Long Google Stock

Gold stars to YouTube, Google, and their respective investment bankers for how they handled this one... Settle on basic deal terms and a provisional price, leak details so the market has a couple of days to chew on the idea, see how the stock reacts, neutralize the market's biggest concern (lawsuits) by announcing a distribution pact with the main guy who might sue you, fix the price, rubber-stamp the press release, and go.

It's also worth noting that Sequoia and YouTube could easily have taken some cash off the table, but instead chose to go long Google stock at more than $400 a share. Yes, there are tax considerations, but if you think Google's stock has top-ticked (or even if you just wanted to reduce risk), you would take some cash.

Both Sequoia and YouTube obviously have insight into Google's performance in Q3 and the current quarter, and neither party, presumably, would want to celebrate the closing of the deal by loading up on a tanking stock. The exchange rate has yet to be set, so Sequoia and YouTube could be gambling that a bad third-quarter report will temporarily hobble the stock, but this seems a bit too clever.

So, on balance, amid the Yahoo-problem-or-industry-problem worries, probably a positive stamp of approval on Google's current business trends.

(Thanks to Battelle for the cool graphic)

Comments

[Mr WaveTheory:]

Below are the Google (Nasdasq GOOG)/ Youtube comments from Wall Street Analysts. All of the firms below make markets in Google stock and/or options, so take their advice with a grain - make that 2 grains - of salt.

While it is counter to Google's general preference to build rather than buy, and the company already has a similar offering in Google Video, we believe Google recognizes the value of YouTube's leadership position and its strong brand name in the fast-growing video space. … By owning YouTube, Google may be able to bring content holders to the negotiating table earlier and in a more strategic way than otherwise might be possible.
--Douglas Anmuth at Lehman Brothers, who has an "overweight" rating and $530 price target
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<strong>Read More Analyst comments on Google Deal</strong>

2006 Oct 10 08:21 AM

[kkin365:]

Good assessment. If the rate has not been set, would it not to YouTube's advantage to expect a lower GOOG price? omooc

2006 Oct 10 08:52 AM